volt-20210801

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 1, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-09232

VOLT INFORMATION SCIENCES, INC.

(Exact name of registrant as specified in its charter)


New York			13-5658129
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
2401 N. Glassell Street, Orange, California			92865
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code:

(714) 921-8800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10	VOLT	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of September 10, 2021, there were 22,079,278 shares of common stock outstanding.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(unaudited)


	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020
NET REVENUE	$	217,534	$	185,941	$	657,584	$	610,982
Cost of services	181,334		155,983		552,223		517,360
GROSS MARGIN	36,200		29,958		105,361		93,622

EXPENSES
Selling, administrative and other operating costs	34,039		31,245		100,736		106,931
Restructuring and severance costs	489		546		1,716		2,203
Impairment charges	112		2,384		404		2,395
OPERATING INCOME (LOSS)	1,560		(4,217)		2,505		(17,907)

OTHER INCOME (EXPENSE), NET
Interest income (expense), net	(445)		(467)		(1,352)		(1,788)
Foreign exchange gain (loss), net	(34)		571		279		(23)
Other income (expense), net	(152)		(168)		(455)		(578)
TOTAL OTHER INCOME (EXPENSE), NET	(631)		(64)		(1,528)		(2,389)

INCOME (LOSS) BEFORE INCOME TAXES	929		(4,281)		977		(20,296)
Income tax provision	314		556		929		774
NET INCOME (LOSS)	$	615	$	(4,837)	$	48	$	(21,070)

PER SHARE DATA:
Basic:
Net income (loss)	$	0.03	$	(0.22)	$	—	$	(0.98)
Weighted average number of shares	21,968		21,589		21,851		21,474

Diluted:
Net income (loss)	$	0.03	$	(0.22)	$	—	$	(0.98)
Weighted average number of shares	22,651		21,589		22,542		21,474

See accompanying Notes to Condensed Consolidated Financial Statements.

VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020
NET INCOME (LOSS)	$	615	$	(4,837)	$	48	$	(21,070)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes	(189)		733		902		495
COMPREHENSIVE INCOME (LOSS)	$	426	$	(4,104)	$	950	$	(20,575)

See accompanying Notes to Condensed Consolidated Financial Statements.

VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)


	August 1, 2021		November 1, 2020
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	49,595	$	38,550
Restricted cash and short-term investments	11,918		20,736
Trade accounts receivable, net of allowances of $129 and $219, respectively	127,200		121,916
Other current assets	8,503		7,058
TOTAL CURRENT ASSETS	197,216		188,260
Property, equipment and software, net	18,977		22,167
Right of use assets - operating leases	23,700		25,107
Other assets, excluding current portion	6,775		6,311
TOTAL ASSETS	$	246,668	$	241,845
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accrued compensation	$	19,700	$	18,357
Accounts payable	28,670		31,221
Accrued taxes other than income taxes	28,208		12,983
Accrued insurance and other	16,337		15,908
Operating lease liabilities	6,985		7,144
Income taxes payable	957		891
TOTAL CURRENT LIABILITIES	100,857		86,504
Accrued payroll taxes and other, excluding current portion	21,833		29,988
Operating lease liabilities, excluding current portion	35,005		38,232
Income taxes payable, excluding current portion	90		90
Deferred income taxes	—		3
Long-term debt, net	59,230		59,154
TOTAL LIABILITIES	217,015		213,971
Commitments and contingencies

STOCKHOLDERS’ EQUITY:
Preferred stock, par value $1.00; Authorized - 500,000 shares; Issued - none	—		—
Common stock, par value $0.10; Authorized - 120,000,000 shares; Issued - 23,738,003 shares; Outstanding - 22,079,278 shares and 21,729,400 shares, respectively	2,374		2,374
Paid-in capital	79,338		79,937
Accumulated deficit	(33,405)		(29,793)
Accumulated other comprehensive loss	(5,556)		(6,458)
Treasury stock, at cost; 1,658,725 and 2,008,603 shares, respectively	(13,098)		(18,186)
TOTAL STOCKHOLDERS’ EQUITY	29,653		27,874
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	246,668	$	241,845

See accompanying Notes to Condensed Consolidated Financial Statements.

VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except number of share data)

(unaudited)


	Nine Months Ended August 1, 2021
	Common Stock $0.10 Par Value			Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity
	Shares	Amount
BALANCE AT NOVEMBER 1, 2020	23,738,003	$	2,374	$	79,937	$	(29,793)	$	(6,458)	$	(18,186)	$	27,874
Net loss	—	—		—		(2,446)		—		—		(2,446)
Share-based compensation	—	—		226		—		—		—		226
Issuance of common stock	—	—		(21)		(145)		—		161		(5)
Other comprehensive income	—	—		—		—		931		—		931
BALANCE AT JANUARY 31, 2021	23,738,003	$	2,374	$	80,142	$	(32,384)	$	(5,527)	$	(18,025)	$	26,580
Net income	—	—		—		1,879		—		—		1,879
Share-based compensation	—	—		531		—		—		—		531
Other comprehensive income	—	—		—		—		160		—		160
BALANCE AT MAY 2, 2021	23,738,003	$	2,374	$	80,673	$	(30,505)	$	(5,367)	$	(18,025)	$	29,150
Net income	—	—		—		615		—		—		615
Share-based compensation	—	—		537		—		—		—		537
Issuance of common stock	—	—		(1,872)		(3,515)		—		4,927		(460)
Other comprehensive loss	—	—		—		—		(189)		—		(189)
BALANCE AT AUGUST 1, 2021	23,738,003	$	2,374	$	79,338	$	(33,405)	$	(5,556)	$	(13,098)	$	29,653


	Nine Months Ended August 2, 2020
	Common Stock $0.10 Par Value			Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity
	Shares	Amount
BALANCE AT NOVEMBER 3, 2019	23,738,003	$	2,374	$	77,688	$	(10,917)	$	(6,801)	$	(26,155)	$	36,189
Effect of new accounting principle	—	—		—		22,216		—		—		22,216
Net loss	—	—		—		(10,808)		—		—		(10,808)
Share-based compensation	—	—		511		—		—		—		511
Issuance of common stock	—	—		(114)		(739)		—		846		(7)
Other comprehensive income	—	—		—		—		364		—		364
BALANCE AT FEBRUARY 2, 2020	23,738,003	$	2,374	$	78,085	$	(248)	$	(6,437)	$	(25,309)	$	48,465
Net loss	—	—		—		(5,425)		—		—		(5,425)
Share-based compensation	—	—		508		—		—		—		508
Other comprehensive loss	—	—		—		—		(602)		—		(602)
BALANCE AT MAY 3, 2020	23,738,003	$	2,374	$	78,593	$	(5,673)	$	(7,039)	$	(25,309)	$	42,946
Net loss	—	—		—		(4,837)		—		—		(4,837)
Share-based compensation	—	—		414		—		—		—		414
Issuance of common stock	—	—		679		(6,267)		—		6,592		1,004
Other comprehensive income	—	—		—		—		733		—		733
BALANCE AT AUGUST 2, 2020	23,738,003	$	2,374	$	79,686	$	(16,777)	$	(6,306)	$	(18,717)	$	40,260

See accompanying Notes to Condensed Consolidated Financial Statements.

VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Nine Months Ended
	August 1, 2021		August 2, 2020
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net income (loss)	$	48	$	(21,070)
Adjustment to reconcile net income (loss) to cash (used in) provided by operating activities:
Depreciation and amortization	5,642		5,884
Non-cash operating lease expense	6,722		6,024
Provision (release) of doubtful accounts and sales allowances	(200)		4
Unrealized foreign currency exchange loss	539		796
Impairment charges	404		2,395
Gain on dispositions of property, equipment and software	—		(287)
Share-based compensation	1,294		1,433
Change in operating assets and liabilities:
Trade accounts receivable	(5,196)		27,815
Other assets	(1,592)		1,011
Accounts payable	(2,562)		(9,507)
Accrued expenses and other liabilities	(236)		(868)
Income taxes	11		(548)
Net cash provided by operating activities	4,874		13,082
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Sales of investments	400		659
Purchases of investments	(386)		(469)
Proceeds from sale of property, equipment and software	20		399
Purchases of property, equipment and software	(2,649)		(3,925)
Net cash used in investing activities	(2,615)		(3,336)
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Repayment of borrowings	—		(15,000)
Draw-down on borrowings	—		20,000
Debt issuance costs	(166)		(331)
Other	(428)		(74)
Net cash (used in) provided by financing activities	(594)		4,595
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(29)		(463)
Net increase in cash, cash equivalents and restricted cash	1,636		13,878
Cash, cash equivalents and restricted cash, beginning of period	56,433		38,444
Cash, cash equivalents and restricted cash, end of period	$	58,069	$	52,322

Cash paid during the period:
Interest	$	1,374	$	1,858
Income taxes	$	252	$	1,445

Reconciliation of cash, cash equivalents, and restricted cash:
Current assets:
Cash and cash equivalents	$	49,595	$	30,928
Restricted cash included in Restricted cash and short-term investments	8,474		21,394
Cash, cash equivalents and restricted cash, end of period	$	58,069	$	52,322

See accompanying Notes to Condensed Consolidated Financial Statements.

VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Fiscal Periods Ended August 1, 2021 and August 2, 2020

(Unaudited)

NOTE 1: Basis of Presentation

Basis of Presentation

The accompanying interim condensed consolidated financial statements of Volt Information Sciences, Inc. (“Volt” or the “Company”) have been prepared in conformity with generally accepted accounting principles (“GAAP”), consistent in all material respects with those applied in the Annual Report on Form 10-K for the year ended November 1, 2020. The Company makes estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates and changes in estimates are reflected in the period in which they become known. Accounting for certain expenses, including income taxes, is based on full year assumptions, and the financial statements reflect all normal adjustments that, in the opinion of management, are necessary for fair presentation of the interim periods presented. The interim information is unaudited and is prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”), which provides for omission of certain information and footnote disclosures. This interim financial information should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended November 1, 2020.

NOTE 2: Recently Issued Accounting Pronouncements

New Accounting Standards Not Yet Adopted by the Company

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Accounting Standards Codification (“ASC”) Topic 326), as clarified in ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2018-19, amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. The amendments for Smaller Reporting Companies are effective for fiscal years beginning after December 15, 2022, which for the Company will be the first quarter of fiscal 2024. The Company expects to early adopt this ASU in the first quarter of fiscal 2023. Although the impact upon adoption will depend on the financial instruments held by the Company at that time, the Company does not anticipate a significant impact on its consolidated financial statements based on the instruments currently held and its historical trend of bad debt expense relating to trade accounts receivable.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures.

Recently Adopted by the Company

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was effective for the Company in the first quarter of fiscal 2021. The Company’s securitization program references the LIBOR rate but only as a secondary rate to be used under specific circumstances. The adoption of this guidance had no significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC 820. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of ASU 2018-13. ASU 2018-13 was effective for the Company in the first quarter of fiscal 2021. The adoption of this guidance had no significant impact on the Company’s consolidated financial statements.

All other ASUs that became effective for Volt during the first nine months of fiscal 2021 were not applicable to the Company at this time and therefore, did not have any impact during the period.

NOTE 3: Leases

The Company’s material operating leases consist of branch locations, as well as corporate office space. Our leases have remaining terms of 1 - 9 years. The lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal option periods. Volt determines if an arrangement meets the criteria of a lease at inception, at which time it also performs an analysis to determine whether the lease qualifies as operating or financing.

Operating leases are included in Right of use assets - operating leases and Operating lease liabilities, current and long-term, in the Condensed Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term and is included in Selling, administrative and other operating costs in the Condensed Consolidated Statements of Operations. The Company’s finance lease arrangements are immaterial.


Components of Lease Expense (in thousands)	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020
Operating lease expense	$	2,206	$	2,827	$	6,660	$	8,751
Sublease income	(461)		(394)		(1,338)		(1,183)
Variable lease expense	374		213		1,117		482
Total (1)(2)	$	2,119	$	2,646	$	6,439	$	8,050

(1) The Company’s short-term lease expense is immaterial.

(2) Lease expense included in restructuring is approximately $0.3 million and $1.2 million for the three and nine months ended August 1, 2021, respectively, and $0.1 million and $0.1 million for the three and nine months ended August 2, 2020, respectively.


	Nine Months Ended
Supplemental Cash Flows Information (in thousands)	August 1, 2021		August 2, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	8,255	$	8,784
Operating ROU assets obtained in exchange for operating lease liabilities	$	2,837	$	1,784


	Nine Months Ended
Weighted Average Remaining Lease Term and Discount Rate	August 1, 2021		August 2, 2020
Weighted average remaining lease term (years)	7.5		8.1
Weighted average discount rate	6.3	%	6.3	%


Maturities of Lease Liabilities (in thousands)	As of August 1, 2021
Fiscal Year:	Amount
Remainder of 2021	$	2,520
2022	8,944
2023	7,525
2024	5,981
2025	5,412
Thereafter	22,990
Total future lease payments	$	53,372
Less: Imputed interest	11,250
Total lease liabilities	$	42,122

NOTE 4: Revenue Recognition

Revenue Recognition

All of the Company’s revenue and trade receivables are generated from contracts with customers. Revenue is recognized when control of the promised services is transferred to the Company’s customers at an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company’s revenue is recorded net of any sales or other similar taxes collected from its customers.

Revenue Service Types

Staffing Services

Volt’s primary service is providing contingent (temporary) workers to its customers. These services are primarily provided through direct agreements with customers and Volt provides these services using its employees and, in some cases, by subcontracting with other vendors of contingent workers. Volt’s costs in providing these services consist of the wages and benefits provided to the contingent workers as well as the recruiting costs, payroll department costs and other administrative costs.

Direct Placement Services

Direct placement services include providing qualified candidates to the Company’s customers to hire on a permanent basis. Direct placement revenue is recognized net of a reserve for permanent placement candidates that do not remain with the customer through the contingency period, which is typically 60 days or less. This contingency is estimated based on historical data and recorded as a refund liability.

Managed Service Programs (“MSP”)

The Company’s MSP programs provide comprehensive solutions for delivery of contingent labor for assignment to customers, including supplier and worker sourcing, selecting, qualifying, on/off-boarding, time and expense recordation, reporting and approved invoicing and payment processing procedures. The Company’s fee for these MSP services is a fixed percentage of the staffing services spend that is managed through the program.

Disaggregation of Revenues

The following table presents our segment revenues disaggregated by service type (in thousands):


	Three Months Ended August 1, 2021
Segment	Total		North American Staffing		International Staffing		North American MSP		Corporate and Other		Eliminations
Service Revenues:
Staffing Services	$	206,733	$	176,842	$	22,984	$	6,800	$	121	$	(14)
Direct Placement Services	4,525		2,539		1,468		518		—		—
Managed Service Programs	6,276		—		3,804		2,472		—		—
	$	217,534	$	179,381	$	28,256	$	9,790	$	121	$	(14)

Geographical Markets:
Domestic	$	188,229	$	178,549	$	—	$	9,694	$	—	$	(14)
International	29,305		832		28,256		96		121		—
	$	217,534	$	179,381	$	28,256	$	9,790	$	121	$	(14)


	Three Months Ended August 2, 2020
Segment	Total		North American Staffing		International Staffing		North American MSP		Corporate and Other		Eliminations
Service Revenues:
Staffing Services	$	178,829	$	153,642	$	18,829	$	6,313	$	149	$	(104)
Direct Placement Services	2,587		1,069		935		583		—		—
Managed Service Programs	4,525		—		1,985		2,540		—		—
	$	185,941	$	154,711	$	21,749	$	9,436	$	149	$	(104)

Geographical Markets:
Domestic	$	163,397	$	154,123	$	—	$	9,358	$	—	$	(84)
International	22,544		588		21,749		78		149		(20)
	$	185,941	$	154,711	$	21,749	$	9,436	$	149	$	(104)


	Nine Months Ended August 1, 2021
Segment	Total		North American Staffing		International Staffing		North American MSP		Corporate and Other		Eliminations
Service Revenues:
Staffing Services	$	627,908	$	541,761	$	65,514	$	20,381	$	357	$	(105)
Direct Placement Services	11,339		6,131		3,623		1,585		—		—
Managed Service Programs	18,337		—		11,012		7,325		—		—
	$	657,584	$	547,892	$	80,149	$	29,291	$	357	$	(105)

Geographical Markets:
Domestic	$	574,104	$	545,168	$	—	$	29,011	$	—	$	(75)
International	83,480		2,724		80,149		280		357		(30)
	$	657,584	$	547,892	$	80,149	$	29,291	$	357	$	(105)


	Nine Months Ended August 2, 2020
Segment	Total		North American Staffing		International Staffing		North American MSP		Corporate and Other		Eliminations
Service Revenues:
Staffing Services	$	588,304	$	506,471	$	63,935	$	18,233	$	539	$	(874)
Direct Placement Services	8,966		4,021		2,818		2,127		—		—
Managed Service Programs	13,712		—		5,522		8,190		—		—
	$	610,982	$	510,492	$	72,275	$	28,550	$	539	$	(874)

Geographical Markets:
Domestic	$	535,949	$	508,439	$	—	$	28,323	$	—	$	(813)
International	75,033		2,053		72,275		227		539		(61)
	$	610,982	$	510,492	$	72,275	$	28,550	$	539	$	(874)

Unsatisfied Performance Obligations

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which they will recognize revenue at the amount to which it has the right to invoice for services performed. Unsatisfied performance obligations for contracts not meeting the aforementioned criteria are immaterial.

Accounts Receivable, Contract Assets and Contract Liabilities

The Company records accounts receivable when its right to consideration becomes unconditional and records a sales allowance as a liability. As of August 1, 2021, the change in the reserve balance from November 1, 2020 was a decrease of $0.1 million. Contract assets primarily relate to the Company’s rights to consideration for services provided that are conditional on satisfaction of future performance obligations. The Company records contract liabilities when payments are made or due prior to the related performance obligations being satisfied. The current portion of contract liabilities is included in Accrued insurance and other in the Condensed Consolidated Balance Sheets. The Company does not have any material contract assets or long-term contract liabilities as of August 1, 2021 and November 1, 2020.

Economic Factors

The Company’s operations are subject to variations in the economic condition and regulatory environment in their jurisdictions of operations. Adverse economic conditions may severely reduce the demand for the Company’s services and directly impact the revenue. In addition, the Company faces risks in complying with various legal requirements and unpredictable changes in both U.S. and foreign regulations which may have a financial impact on the business and operations.

The global spread of COVID-19, or coronavirus, created significant volatility, uncertainty and global macroeconomic disruption. Our business, results of operations and financial condition have been and may continue to be impacted by the coronavirus pandemic, related government actions and any future adverse impacts could be material and are difficult to predict.

NOTE 5: Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss for the three and nine months ended August 1, 2021 were (in thousands):


	Three Months Ended		Nine Months Ended
	August 1, 2021
	Foreign Currency Translation
Accumulated other comprehensive loss at beginning of the period	$	(5,367)	$	(6,458)
Other comprehensive income (loss)	(189)		902
Accumulated other comprehensive loss at August 1, 2021	$	(5,556)	$	(5,556)

There were no taxes allocated to the components of Other comprehensive income (loss) and no reclassifications from accumulated other comprehensive loss for the three and nine months ended August 1, 2021 and August 2, 2020.

NOTE 6: Restricted Cash and Short-Term Investments

Restricted cash primarily includes amounts related to requirements under certain contracts with managed service program customers, for whom the Company manages the customers’ contingent staffing requirements, including processing of associate vendor billings into single, combined customer billings and distribution of payments to associate vendors on behalf of customers, as well as minimum cash deposits required to be maintained as collateral. Distribution of payments to associate vendors is generally made shortly after receipt of payment from customers, with undistributed amounts included in restricted cash and accounts payable between receipt and distribution of these amounts, where contractually required. At August 1, 2021 and November 1, 2020, restricted cash included $4.1 million and $9.2 million, respectively, restricted for payment to associate vendors, and $0.6 million and $0.5 million, respectively, restricted for other collateral accounts.

At August 1, 2021 and November 1, 2020, restricted cash also included $3.8 million and $8.2 million, respectively, restricted under the Company’s long-term accounts receivable securitization program (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ Bank”). At August 1, 2021, this cash was restricted as it supplemented collateral provided by accounts receivable towards the Company’s aggregate borrowing base usage of $82.1 million, inclusive of $60.0 million outstanding and $22.1 million in issued letters of credit. At November 1, 2020, this cash was restricted as it supplemented collateral provided by accounts receivable towards the Company’s aggregate borrowing base usage of $84.5 million, inclusive of $60.0 million outstanding and $24.5 million in issued letters of credit.

Short-term investments were $3.4 million and $2.9 million at August 1, 2021 and November 1, 2020, respectively. These short-term investments consisted primarily of the fair value of deferred compensation investments corresponding to employees’ selections, primarily in mutual funds, based on quoted prices in active markets.

NOTE 7: Fair Value Measurements

Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market to measure fair value, as described below:

a.Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities.

b.Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

c.Level 3 measurements include significant unobservable inputs.

The carrying amounts of the Company’s financial instruments, which include cash, cash equivalents, restricted cash, accounts receivable and accounts payable, approximated their fair values due to the short-term nature of these instruments.

The Company holds mutual funds to satisfy its obligations under its employee deferred compensation plan, which is carried at fair value based on quoted market prices in active markets for identical assets (Level 1). These short-term investments were $3.4 million and $2.9 million at August 1, 2021 and November 1, 2020, respectively. The carrying amounts of long-term debt recorded in the

Company’s Condensed Consolidated Balance Sheets was $59.2 million at August 1, 2021 and November 1, 2020. This amount was net of deferred financing fees and approximated its fair value, which is determinable based on the interest rates the Company believes it could obtain for borrowings with similar terms (Level 2).

Certain assets, such as goodwill, are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Upon a triggering event or evidence of impairment, the Company determines the fair value of these assets using Level 3 inputs, typically within a discounted cash flow model.

There have been no changes in the methodology used to measure fair value of the financial instruments as well as any transfer of Level 3 assets or liabilities during the three and nine months ended August 1, 2021.

NOTE 8: Income Taxes

The income tax provision reflects the geographic mix of earnings in various federal, state and foreign tax jurisdictions and their applicable rates resulting in a composite effective tax rate. The Company’s cumulative results for substantially all United States (“U.S.”) and certain non-U.S. jurisdictions for the most recent three-year period is a loss. Accordingly, a valuation allowance has been established for substantially all loss carryforwards and other net deferred tax assets for these jurisdictions, resulting in an effective tax rate that is significantly different than the statutory rate.

The Company adjusts its effective tax rate for each quarter to be consistent with the estimated annual effective tax rate, consistent with ASC 270, Interim Reporting, and ASC 740-270, Income Taxes – Intra Period Tax Allocation. Jurisdictions with a projected loss for the full year where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate. The Company’s future effective tax rates could be affected by earnings being different than anticipated in countries with differing statutory rates, increases in recorded valuation allowances of tax assets, or changes in tax laws.

The Company’s provision for income taxes primarily includes foreign jurisdictions and state taxes. The income tax provision in the third quarter of fiscal 2021 and 2020 were $0.3 million and $0.6 million, respectively, primarily related to locations outside of the United States. For the nine months ended August 1, 2021 and August 2, 2020, the income tax provision was $0.9 million and $0.8 million, respectively, primarily related to locations outside of the United States. The Company’s quarterly provision for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items that occur within the periods presented.

The Company has analyzed the income tax impacts of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and has determined that it will not have a material impact to the Company.

NOTE 9: Debt

The Company’s primary sources of liquidity are cash flows from operations and proceeds from its financing arrangements. Both operating cash flows and borrowing capacity under the Company’s financing arrangements are directly related to the levels of accounts receivable generated by its businesses. The Company’s operating cash flows consist primarily of collections of customer receivables offset by payments for payroll and related items for the Company’s contingent staff and in-house employees; federal, foreign, state and local taxes; and trade payables. The Company’s level of borrowing capacity under its financing arrangements increases or decreases in tandem with any change in accounts receivable based on revenue fluctuations.

The Company manages its cash flow and related liquidity on a global basis. The weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $16.5 million. The Company generally targets minimum global liquidity to be approximately 1.5 times its average weekly requirements. The Company also maintains minimum effective cash balances in foreign operations and uses a multi-currency netting and overdraft facility for its European entities to further minimize overseas cash requirements.

On March 27, 2020, the U.S. government enacted the CARES Act which, among other things, permits the deferral of the employer’s portion of social security tax payments between March 27, 2020 and December 31, 2020. As a result, as of August 1, 2021, $26.2 million of employer payroll tax payments were deferred with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.

The DZ Financing Program is fully collateralized by certain receivables of the Company that are sold to a wholly-owned, consolidated, bankruptcy-remote subsidiary. To finance the purchase of such receivables, that subsidiary may request that DZ Bank make loans from time-to-time to that subsidiary which are secured by liens on those receivables.

In July 2019, the Company amended and restated its long-term DZ Financing Program, which was originally executed on January 25, 2018. The restated agreement allows for the inclusion of certain accounts receivable from originators in the United Kingdom, which added an additional $5.0 - $7.0 million in borrowing availability. In June 2020, the Maximum Facility Amount, as defined in the DZ Financing Program, was reduced from $115.0 million to $100.0 million.

In December 2020, the Company amended the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as defined in the DZ Financing Program, from January 25, 2023 to January 25, 2024; (2) extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2023 to July 25, 2024; (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020 to any fiscal year ending after 2021; (4) replace the existing Tangible Net Worth (“TNW”) covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021 and $25.0 million in each quarter thereafter; and (5) revise the eligibility threshold for the receivables of a large North American Staffing customer from 5% of eligible receivables to 8%, which increased our overall availability under the Program by $1.0 - $3.0 million. All other terms and conditions of the DZ Financing Program remain substantially unchanged.

Loan advances may be made under the DZ Financing Program through January 25, 2024 and all loans will mature no later than July 25, 2024. Loans will accrue interest (i) with respect to loans that are funded through the issuance of commercial paper notes, at the commercial paper (“CP”) rate and (ii) otherwise, at a rate per annum equal to adjusted LIBOR. The CP rate will be based on the rates paid by the applicable lender on notes it issues to fund related loans. Adjusted LIBOR is based on LIBOR for the applicable interest period and the rate prescribed by the Board of Governors of the Federal Reserve System for determining the reserve requirements with respect to Eurocurrency funding. If an event of default occurs, all loans shall bear interest at a rate per annum equal to the prime rate (the federal funds rate plus 3%) plus 2.5%.

The DZ Financing Program also includes a letter of credit sub-facility with a sub-limit of $35.0 million. As of August 1, 2021, the letter of credit participation was $22.1 million inclusive of $20.9 million for the Company’s casualty insurance program and $1.2 million for the security deposit required under certain real estate lease agreements.

The DZ Financing Program contains customary representations and warranties as well as affirmative and negative covenants. The agreement also contains customary default, indemnification and termination provisions. The DZ Financing Program is not an off-balance sheet arrangement, as the bankruptcy-remote subsidiary is a 100%-owned consolidated subsidiary of the Company.

The Company is subject to certain financial and portfolio performance covenants under the DZ Financing Program, including (1) a minimum TNW, as defined under the DZ Financing Program, of at least $20.0 million through the Company's fiscal quarter ending on or about July 31, 2021 and $25.0 million in each quarter thereafter; (2) positive net income in any fiscal year ending after 2021; (3) maximum debt to tangible net worth ratio of 3:1; and (4) a minimum of $15.0 million in liquid assets, as defined under the DZ Financing Program. At August 1, 2021, the Company was in compliance with all debt covenants. At August 1, 2021, there was $4.0 million of borrowing availability, as defined under the DZ Financing Program.

At August 1, 2021, the Company had outstanding borrowings under the DZ Financing Program of $60.0 million, with a weighted average annual interest rate of 1.9% during both the third quarter of fiscal 2021 and for the first nine months of fiscal 2021. At August 2, 2020, the Company had outstanding borrowings under the DZ Financing Program of $60.0 million, with a weighted average annual rate of 2.0% during the third quarter of fiscal 2020 and 2.8% during the first nine months of fiscal 2020.

Long-term debt consists of the following (in thousands):


	August 1, 2021		November 1, 2020
Financing programs	$	60,000	$	60,000
Less:
Deferred financing fees	770		846
Total long-term debt, net	$	59,230	$	59,154

NOTE 10: Earnings (Loss) Per Share

Basic and diluted net income (loss) per share are calculated as follows (in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

August 1, 2021

August 2, 2020

August 1, 2021

August 2, 2020

Numerator